Analysis: The Great Indian Startup Movement

As vast swathes of consumers move online across India, huge volumes of new startups are flooding into the marketplace to service them. The space is growing rapidly and an ecosystem is emerging to help them succeed. Yet the issues these companies face include a disparate geographic area, a large range of languages and a general lack of credit card use. Maybe those who can conquer this fast expanding India really can take on the world?

Indian shopkeepers are well known throughout the world. In Britain, before supermarkets, shops run by Indians were in evidence on every street corner. In East Africa, scores of dukkawallas (a word for shopkeeper which blends Swahili with Hindi) could be seen throughout the region. Whilst a 2006 survey stated that India had the highest shop density in the world with more than 20 shops per family in urban areas. Now that spirit of entrepreneurialism is moving online.

When Social Media Marketing company, ViralMint, launched in 2011 the initial plan was to move out of India within seven months. Instead, the market acted like a funnel; eCommerce companies sprung up left right and centre and a constant stream of new customers flowed in. “There is a lot happening in this space and there is a lot of innovation that goes on,” says CEO & Founder Rohan Dighe. “It is a great market at least at this point in time.”

Indian eCommerce is now causing serious interest from wealthy bodies around the world. In February the Economic Times of India wrote: “For nearly a year now, some of the world's most renowned investors have poured in big money to get a slice of the action in India, one of the fastest-growing markets for eCommerce.” In fact, VCCEdge, a deals tracker, has already recorded 10 transactions worth $288 million in the space this year.

The Times of India reported in November: “Internet penetration in the country may not have crossed 16% of the population yet, but in absolute numbers this percentage works out to nearly 10 times the population of Australia.” Based on findings from the Internet and Mobile Association of India, this provides a powerful indication of the potential of consumer growth to come.

The lack of credit cards and bank accounts currently being used by consumers, especially in rural India, has proved a bit of a problem. Yet this has seen mobile used to get people into banking channels. “It is a quiet revolution happening,” says Aditya Mishra a co-Founder of Headstart .“I don’t think most people, even in India, realise how tech savvy these people are.” However, a piece in the New Yorker titled “Will bank accounts catch on in India?” took a slightly more sceptical view.

The vogue at present is for “cash on delivery” which enables people of avoid paying online. Whilst a large number of companies have appeared in the space to cater for the disconnect between offline and online commerce. PriceBaba, for example allows individuals to compare prices of mobile phones online, so they can go on to purchase them in physical stores.

“The buying behaviour in India is different from other countries,” explains Annkur P Agarwal co-Founder at PriceBaba, “but has a lot in common with other emerging markets. What I saw during my stay in the US is that people go to physical stores and then look at: how can I buy it cheaper online. What I’ve seen in India is that people look at a product online and then they want to figure out, ‘how can I get this near me?’”

At the other end of the spectrum there has been a clear rise in the number of online payment systems available, such as mobile wallet Y-Cash and Instamojo. Deepak Kanakaraju, who founded BikeAdvice.in for example, gave Instamojo a glowing review on his site last October. This has been “a God-send for people like me who sell training programs online through internet and usually do in small volumes.”

Yet for many new businesses, the sheer size and disparity of the country makes India as much of a challenge as it is an opportunity. “If you look at some of the European countries,” says Amit Mehra, CEO of Reuters Market Light (RML), “they are smaller in population than some Indian states. When people ask what would be the challenge to take it to other parts of the world, I say it will be a language difference, a cultural difference, agro-climatic difference, but guess what, this is exactly what we had to do when we moved from one state to two states in India.”

What is the State of the Indian Startup Scene?

Headstart is an organisation which runs events and talks across India to help build the startup ecosystem and since its inception in 2006/7 it has seen numerous positive developments. Aditya Mishra, the co-founder lists them as follows: Firstly, the quality of startups has gone up. Secondly, the people he encounters have more real world experience, which makes their entrepreneurial ambitions more viable. Thirdly, there is now more media focus on the startup scene which has placed a spotlight on entrepreneurship as a career path.

Serial entrepreneur Ravi Jagannathan, MD & CEO of Y-Cash Software Solutions who counts previous successes in eMudhra and Taxsmile, adds that outside of government intervention there has been a lot of change in the way growing organisations are supported:

“[Whether] it is money-related, or incubation centre related, infrastructure related, mentoring related, [there are now] so many services available within the system. Over the last few years there has been encouragement at the college level, encouragement from institutions, support available from investors and incubation centres. It is [all] very conducive for a startup to grow.”

On the consumer side the growth in mobile and internet has seen the level of customer acceptance for startups grow. There has also been a lot more openness in terms of large companies partnering with startups. “Large companies [always] use their scale to their advantage,” says Mishra. “[But] in comparison to the UK or US, a large company here gets away with more than it might elsewhere. [And] while that has changed it has not changed enough.”

“India is a lucrative market. More capital investment is around, however, it is at nowhere near the level it might be in other markets,” he adds. “Fundraising is still difficult in India compared to other parts of the world. But compared to what is was five years back it has become a lot easier.”

Unfortunately developments in the consumer space don’t necessarily translate to benefits in the business arena. “On the enterprise side, people are more open to looking at startups in terms of actually doing business there,” says Mishra. “[But] if I am running an IT enterprise technology startup I will find it easier to pitch it to an American CIO than to an Indian CIO. That continues to be a challenge.”

Mishra feels this is because “an American CIO sees that [his/her] next wave of growth is going to come through technological innovation. But a large company in India knows that growth is going to come by expanding reach. So, if I am able to grow 30%/ 40% without doing anything innovative why do I need to do that?” In essence, technology is not seen as necessary expenditure because it has not been the same driver for growth as consumer spending.

Mishra has no doubts that the startup scene will only become more advanced. “There are very smart people starting very smart things. Once that starts happening money will follow. Success is typically a combination of three things: opportunity, talent and capital. [Of course] I don’t expect the capital to change overnight, they will probably remain the same for the next year or two, but so many people with experience are starting interesting things, I expect a lot more interesting startups.”

Many people believe the challenges faced by Indian companies make for long term benefits elsewhere. “[We want to] start by cracking India,” says Arwal. “The idea is to catch a niche, dominate, it then expand around it. We’re still two years away from moving out of India.”

“We see a lot of traction in Thailand, Singapore and after that Australia is a major place,” says Rohan Dighe. “One of the main factors for growth is when you enter a new market is not stick to what people are doing globally. If you consider SaaS everyone will tell you having a monthly subscription is the way to go and that is the only way you can do the billing. But in some local businesses flexibility is better. Adapting to the market really is the crux of the whole thing and that is what has worked in our favour.”

“If you’re able to innovate despite the challenges, you are able to figure out something immensely replicable all over the world,” concludes Mishra. “One of the things we talk about is – if I can pull this off here in India - doing it in the rest of the world is going to be so much easier.”